The French Connection

One month ago the French police arrested two Uber executives for running an illegal cab company (yes, Uber) — the sort of accusations supported by the French court. I hope the CEO of Uber won’t end like Al Capone, but I would say a couple of good things about the company in advance.

Uber found an ironclad source of value: a heavily taxed and regulated industry with unsophisticated laws. A few changes in the business model totally confused regulators, and Uber currently enjoys a tax advantage across North America and Western Europe. The company surely shares the profits from this advantage with its drivers and clients, but at the expense of other cab services.

These traditional cab services operate in a boring market where no one makes big profits. High prices usually just include all the payments to the city, like expensive licenses and employee-related taxes. Are these payments a waste? In cities like Paris tourists enjoy clean streets and good roads because they pay this high price for personal transport. And so do locals: a taxi means more jams, more pollution, and more roads. On the contrary, when cities keep transport-related taxes low, the mayor gets reelected but the entire city spend each morning in jams.

What about the better drivers that Uber has? Actually, they are paid higher wages:

Source
Source

How’s that? The part-time employment that implies lower taxes (and cost hiding). Which brings us back to the argument above.

Yep, Uber has all those driver ratings and such, but even small traditional taxi companies learned how to get feedback on their drivers. But better employees want wages that are — taxes included — incompatible with the industry.

The second success factor of Uber-like multinational taxi services is the McDonald’s signal. Wherever you happen to be, there’s a company with the known standards of quality. As for taxis, at least you won’t end up in the wrong part of the city with the driver having his first week in a new country. But that’s for folks who travel a lot across cities, so not the biggest deal.

It’s possible, of course, that Uber creates value in other ways, like managing its cab fleet better. They don’t reveal this information. They did reveal the interest in replacing humans with self-driving cars after their raid on Carnegie Mellon, but that’s for the future.

This sounds less revolutionary and disruptive than the “sharing economy” evangelism, but startup founders waste time on ideological companies that fail because sharing by itself creates little value. It’s really better to spend less time in development and more time in looking for real sources of value here.

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